14 Government intervention Flashcards

1
Q

Direct taxation

A

Amount levied on a business or an individual that must be paid to the government e.g government tax

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2
Q

indirect taxation

A

Amount levied on a producer to increase the cost of a product e.g VAT

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3
Q

effectiveness of tax

A
  • PED - inelastic are likely to see high price increases for the consumer but little change in quantity
  • XED - if product can be easily substituted for one without the same level of taxation
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4
Q

subsidies

A

amount paid on a business to produce products - increase the supply - decreasing price and increasing quantity

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5
Q

effectiveness of a subsidy

A
  • PED - price elastic are likely to see a relatively small price change for the consumer leading to large change in quantity
  • XED - if consumers can switch to the subsisdised product then a relatively small subsidy can lead to a large increase in quantity
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6
Q

Government expenditure

A
  • have direct effect on supply of a product i.e through a subsidy
  • gov can spend where the effect might be more subtle increase employment in region - improve high street to encourage businesses
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7
Q

price control

A

a minimum or maximum price for which a product must be sold

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8
Q

price ceiling

A
  • max price
  • rent control new york mkinging rentals more affordable for lower incomes
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9
Q

price floor

A
  • min price
  • alchol in sctoland reduce negative effects of excesssive alchol consumption as a demerit good and negative externality
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10
Q

buffer stock system

A

syste of holding and releasing tsock to maintain a market price despite supply fluctuations
- bad supply - price will increase and if a necessity would cause hardship for households so then stock can be released from the buffer stock therefore increasing supply
- increased supply would decrease prices for producers so stock can be placed in storage to decrease supply

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11
Q

effectiveness of buffer stock

A
  • product must be able to be stored in some format
  • cost of storage may be added leading to inefficiency
  • price ceiling and floor my be set incorrectly my led to excess supply or demand every year
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12
Q

public/private partnership

A

joint initiative between government and producer in order to supply to a market

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13
Q

legislation

A

laws that a government puts in place to govern the production and consumption of products
- reduce negative externality and demerit goods
- eliminate market for product so no legitimate supply and demand
- restrict supply (license) or restrict demand (n age limit on drinking)

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14
Q

effectiveness of legislation

A
  • punishment for breaking law - must be seen as an effective deterrent
  • chance of being caught
  • costs of enforcement - limited funds available to enforce a range f laws - cost of enforcing pollution control may be too high
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15
Q

regulation

A
  • rules that are specific to industry or market ad that govern the production or consumption of a product within market/industry
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16
Q

Tradable pollution permits

A
  • system that forces producers to include the costs of pollution in their production decisions
  • pushing cost of pollution back onto producers
  • increases their cost of production
  • firm invests i cleaner technology then they can sell permit decreasing their cost of production a reward for green tech
17
Q

effectiveness of tradable pollution permits

A
  • price of permits - too low negative externality continues or worsens
  • pollution will continue - rewards firms for cleaner production but many firms absorb cost and continue to pollute
  • competitiveness of market - large firms buy all permits forcing smaller businesses out of market
18
Q

Information provision

A
  • act of informing the public about the true nature of a product or market
  • try and educate consumers tp therefore decrease or increase consumption
  • ex smoking cigarettes
19
Q

Competition policy

A
  • legislation or regulation that aims to make a market more competitive
  • large firms have market power and set higher prices
20
Q

collusive behaviour

A

when a number of firms agree to set a high price in order to gain supernormal profit

21
Q

Abuse of market power

A

large dominant firm uses its power to an unfair advantage in the market

22
Q

Government failure

A

when government intervention does not reduce market failure and may even increase it or introduce a new failure. in the market

23
Q

cause of government failure (estimating the extent of the market failure)

A

government intervention requires the government to estimate the size of the market failure. i.e level of taxation

24
Q

cause of government failure (cost of intervention)

A

government intervention has to be administered. New taxes must be levied failing and equitably. Information provision requires a format to be created and distributed

25
Q

cause of government failure (political agendas)

A

some intervention is motivated by political benefit rather than reducing market failure

26
Q

cause of government failure (lack of a profit incentive)

A

NHS lacks incentive to reduce costs because there is no profit motive

27
Q

cause of government failure (regulatory capture)

A

firms operating in the market know most about market failure. when a government agency operates in favour of producers rather than consumers strengthening market failure

28
Q

cause of government failure (moral hazard)

A

firms that are aware the government is milling to protect market will make riskier decisions e.g banks will be bailed out

29
Q

consequences of government failure

A
  • costs leading to opportunity cost of not being able to pay for other government projects
  • intervention may ea to exciting frms leading to unemployment or loss of industry
  • disincentivizes films from increasing production to the most efficient points